Thursday, April 16, 2015

Basic Steps To Build A Project Estimate

One of the most difficult challenges project managers have in creating the preliminary project package is the Independent Government Cost Estimate (IGCE).

First, what is an IGCE?

According to the Defense Acquisition University:

The IGCE is the Government’s estimate of the resources and projected cost of the resources a contractor will incur in the performance of a contract. These costs include direct costs such as labor, products, equipment, travel, and transportation; indirect costs such as labor overhead, material overhead, and general and administrative (G&A) expenses; and profit or fee (amount above costs incurred to remunerate the contractor for the risks involved in undertaking the contract).

The IGCE will be developed by the requiring activity, and will be used to establish a realistic price or cost for budgeting purposes by the Contracting Officer, in addition to being the baseline for evaluating an offeror’s price/cost proposal. Further, the IGCE will also be used for technical and management information.

Here are some steps and tips for creating your project’s IGCE:

1) Define the Tasks to Estimate

First things first, you will need to determine all the tasks that need to be performed on the project. This can be best accomplished using the Work Breakdown Structure (WBS). Planning tasks by using a WBS allows you to break down the work packages to the lowest level elements for estimating and scheduling resource requirements (people, facilities, and equipment). Further, the WBS can ensure all tasks are identified in terms of cost, schedule, and performance goals in order to reduce risk.

2) Identify Expertise on the Project Team

Hopefully you are working in an Integrated Project Team (IPT), which should be composed of functional experts from the various disciplines needed to manage the project throughout the lifecycle. This diversity will help you estimate and define the tasks, as many of the ultimate tasks will have someone from the IPT allocated to do the work. Once identified, this resource assigned the task is probably the right person to help prepare the estimate.

In the event that IPT members are not the right people, or you are not in an IPT, find someone who can help with the estimate. These individuals ideally have expertise from past experience on similar or like projects. Ultimately, you will need to identify who will create your estimates for every project task. Once you know who will be responsible for helping create the estimates, you can then plan to meet with the right people so you can focus on their sections of the project outside of the typical IPT meetings and the guessing game that often comes with these estimating exercises.

3) Determine the Estimating Technique

Outside of the professional judgment of IPT members or outside the group to help shape estimates and task durations, here are three common techniques:

Analogous estimating. Basing your estimates on the results of a previous project is one the best estimating techniques that project managers can use. If you can find a similar project done in the past, or currently being executed, then you can access the duration of tasks, labor categories used for task estimates, and project budget. Although this estimating technique is efficient, do not fall into the trap of simply cutting and pasting, as this technique may not get you very accurate results.

Parametricestimating. Parametric estimating is a more accurate technique for estimating costs and task durations, as it uses the relationship between variables to calculate the task cost or duration. For example, if it took me two hours to paint a 100 square foot room in my home, and I plan to now paint a 400 square foot room, I could estimate that it will take eight hours to paint.

However, if the first hour were spent prepping the room to paint, the estimate would need to be scaled appropriately: 1 hour for prepping and then four hours to paint, for a total of five hours.

Three-point estimating. This technique allows taking into account uncertainties of estimates, but weights the result more heavily towards the most likely outcome. You will need to determine the most likely, best case, and worst-case timescales for the task. With these figures, add together the durations for the best and worst case, plus four times the most likely. Then divide by six.

The equation:

Best case (O, for optimistic)

Worst case (P, for pessimistic)

Most likely (M, for…. Most)

(O + 4M + P) /6

You can also use this technique for labor costs, especially for labor rates per labor category. One of the best techniques for getting the rates is using the GSA Schedules from GSA Advantage.

4) Track the Accuracy of Estimates - Lessons Learned

Creating estimates is not a one and done exercise. Once they are done, you want to continue to build institutional knowledge by verifying the accuracy of the estimates to determine how well you and the team estimated the task durations and their costs. You should determine whether a particular technique for estimating worked best for your team, or for different types of tasks.

This exercise is for lessons learned, as you will be tracking actuals versus estimates for task durations and costs. Verifying how much time you thought the task would take or cost, and comparing it to how long it really took or cost, is a great way to sharpen your estimating skills to improve on future estimates and to also verify how accurate your estimates were.

Cost estimating is often a difficult exercise, and many project managers have difficulties knowing where to start. These tips should get you on the right path to creating realistic estimates for your project, and avoid the ever-present Atmospheric Estimate.

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About Me

Mr. Gracia is President and CEO of Seville Government Consulting. He is an experienced consultant in government contracting and procurement processes, focusing on small business and government clients. He has 20 years of professional experience providing consulting support for the acquisition, training, and management of services and technology in the government and commercial sector including numerous DoD and Federal civilian agencies. He is a Navy veteran, actively supporting military organizations such as the USO, Soldier's Angels, and serving as CFO for Cigars for Warriors.